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Journal of Economic Integration 1997 March;12(1) :47-61.
DOI: https://doi.org/10.11130/jei.1997.12.1.47
A Ricardian Model of New Trade and Location Theory
Luca Antonio Ricci 
International Monetary Fund
Copyright ©1997 Journal of Economic Integration
ABSTRACT
This paper provides a new model of firm's location choices. It integrates a Ricardian model of comparative advantage with the location effects deriving from trade costs, increasing returns to scale, product differentiation, and monopolistic competition. In a two-region, two-differentiated-good, one-factor framework, the regional degree of specialization depends positively on the extent of the comparative advantage in productivity and on the degree of returns to scale; it depends negatively on the magnitude of the trade costs. Hence, the model accommodates high levels of intra-industry trade among countries with similar level of development, as well as high levels of interindustry trade among countries with different technologies. (JEL Classifica tion: F11, F12, F15, L13, R12)
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